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Here's Why Cabela's Inc Shares Gained 13% in March

The company's merger with Bass Pro Shops looks to be back on track.

Bass Pro Shops' decision to buy rival Cabela's (NYSE:CAB) for $5.5 billion made sense in a difficult retail environment, but since the October announcement, the execution has been far from easy. The deal has been sidetracked by the challenges Cabela's has faced selling the internal banking operation for its credit card program.

What happened

Cabela's had reached an agreement to sell its credit card unit to Capital One as a side deal that was announced on the same day as its acquisition. The agreement was supposed to become effective when the merger closed.

Due to a number of regulatory problems, however, that deal has stalled, casting doubt on whether it would happen at all. If it does not, and Cabela's fails to find another buyer for the unit, its deal with Bass Pro Shops would be in jeopardy. But in late March, Cabela's found what appears to be its answer, Synovus Financial, a smaller bank that now plans to take over, keeping the deposits and then reselling the credit card business to Capital One.

So what

With Synovus swooping in to save the day, the broad merger between Cabela's and Bass Pro Shops should be back on track. That helped Cabela's stock recover -- after closing out February at $46.84, shares climbed to $53.11 last month, a 13.4% gain, according to data provided by S&P Global Market Intelligence.

Now what

According to the original deal press release, closing is supposed to occur in the first half of 2017. As that window closes, a review from the Federal Trade Commission has yet to be finalized, but even with these hurdles, the strategic rationale behind the merger remains sound.

However, Cabela's stock is still trading well below the $65.50 per share Bass Pro offered to take it over, so despite the recent positive developments, investors still have their doubts as to whether the deal will ultimately go through.

Daniel Kline has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Author

Daniel B. Kline is an accomplished writer and editor who has worked for Microsoft on its Finance app and The Boston Globe, where he wrote for the paper and ran the Boston.com business desk. His latest book, "Worst Ideas Ever," (Skyhorse) can be purchased at bookstores everywhere.
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